If you’re poor, you’re generally acutely aware of exactly how much money you have at any given time, and that amount is generally very low. Andrew Goodman-Bacon and Leslie McGranahan have a paper out now on the Earned Income Tax Credit, saying that one of the great things about it is that it generally arrives just once a year:
Because the EITC makes one relatively large payment per year, it may provide low-income, credit-constrained households with a rare opportunity to make important big-ticket purchases.
Mark Thoma isn’t very impressed:
This is like forced saving, requiring households to give up monthly consumption for one large annual payment. The fact that they are able to buy more durable goods – cars – with the one time payment is nice, and the argument is that this helps them find employment, but we need to know what they gave up each month before we can conclude they are better off…
Tthere are arguments that can be made here, but the particular argument ought to be made explicit. Why is it better to force people to save? Unless there’s some good reason for the government to step in and make choices for people, I’d rather not have the government get in the habit of thinking it knows better than I do what is good for me.
And I’d note that given the choice, people nearly always prefer their income more frequently rather than less frequently. In some situations, workers are now being paid daily, and that’s a good thing:
Upon completion of a daily work shift, an employee’s payroll card account is credited with salary payment as quickly as two hours after an approved time card is submitted.
Temporary workers can receive payments on the day that a shift is completed, giving them faster access to funds to pay basic living expenses such as groceries, gas and utility bills.
If it’s a good idea for income to arrive on a daily basis, why is it a good idea for the EITC to arrive only on an annual basis? Or is there a useful distinction to be made between income, on the one hand, and a tax credit, on the other?
Update: It did occur to me, after posting this, that there is a good reason to be paid biweekly or monthly rather than daily: you don’t want to be saving up constantly just to make rent. Better to pay your rent out of your paycheck, and then live on what’s left over.